EUR/USD – Losing momentum?

Correction may be coming

The dollar has been on a strong run the last couple of weeks, which when coupled with the broad weakness we’ve seen in the euro has led to an accelerated sell-off in the EURUSD pair.

Higher inflation, a strong consumer and a strengthening labour market has backed the Fed into a corner, despite strong pushback on rate talk over recent weeks. But it was Powell’s renomination that was the straw that broke the camels back – beating Lael Brainard (viewed as more of a dove) to the post – and now markets are pricing in a few rate hikes next year starting in June.

While that has driven the dollar higher, the question now becomes how much more can be priced in? Is it primed for correction? Has the sell-off become oversold?

The momentum indicators certainly suggest so. The stochastic on the daily chart remains deep in oversold territory as price approaches 1.12, while on the 4-hour chart we can clearly see a divergence, with the MACD making higher lows as price continued to decline.

That doesn’t mean we’ve hit a bottom but when approaching a key level of support, it may suggest the trend is weakening. If so, a rotation higher could draw attention back to 1.13 initially – recent support and resistance – and then 1.1375 where the high from late last week coincides with the bottom of the descending channel and the 55/89-period SMA band on the 4-hour chart.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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